INTEGRATED REPORT 2018 - RUN AIRPORTS DEVELOP AIRPORTS GROW OUR FOOTPRINT - Parliamentary Monitoring Group
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AIRPORTS COMPANY SOUTH AFRICA INTEGRATED REPORT 2018
INTEGRATED
REPORT
2018
RUN AIRPORTS
DEVELOP AIRPORTS
GROW OUR FOOTPRINT
WWW.AIRPORTS.CO.ZAAIRPORTS COMPANY SOUTH AFRICA
Abbreviation Definition
ACI Airports Council International ISO International Standards Organisation
ACSA Airports Company South Africa SOC Ltd IT Information technology
AGM Annual general meeting KIM Kimberley Airport
AMC Airport management centre King IV King Code of Governance for South Africa 2016™
AMSIS Airport Management Share Incentive Scheme KPI Key performance indicator
APEX Airport excellence in safety KSIA King Shaka International Airport
ASQ Airport Service Quality LMJVC La Mercy Joint Venture Company
ATM Air traffic movements LTI Long-term incentive
B-BBEE Broad-based black economic empowerment MAP Million annual passengers
BFN Bram Fischer International Airport MOI Memorandum of incorporation
CEO Chief Executive Officer MOU Memorandum of understanding
CFO Chief Financial Officer MIAL Mumbai International Airport Private Limited
CIO Chief Information Officer NTM National Transport Movement
Companies Act Companies Act, No. 71 of 2008 NBAC National bid adjudication committee
COO Chief Operating Officer NDP National Development Plan
CPG Contract participation goal NEHAWU National Education, Health and Allied Workers Union
CPI Consumer price index NUMSA National Union of Metalworkers of South Africa
CSI Corporate social investment ORTIA O.R. Tambo International Airport
CSIA Chhatrapati Shivaji International Airport PFMA Public Finance Management Act, No. 1 of 1999
CTIA Cape Town International Airport PIC Public Investment Corporation
DFI Development Finance Institution PLZ Port Elizabeth International Airport
DoT Department of Transport (Pty) Ltd Proprietary Limited
EAP Economically active population ROE Return on equity
EBITDA Earnings before interest, tax, depreciation and amortisation ROCE Return on capital employed
EIA Environmental impact assessment SAIBPP South African Institute of Black Property Practitioners
ELS East London Airport SAFA South African Football Association
EMS Environmental management system SANS South African National Standards
ESAT Employee satisfaction survey SAATM Single African Air Transport Market
ESD Enterprise supplier development SEE Social Economic and Environment
GDP Gross domestic product SCM Supply chain management
GHG Greenhouse gas SED Socio-economic development
GRU Guarulhos International Airport SMEs Small and medium-sized enterprises
GruPar Guarulhos Participações S.A SOC State-owned company
Ha Hectares SPE Special purpose entity
ICAO International Civil Aviation Organisation STI Short-term incentive
IFRS International Financial Reporting Standards TAAG TAAG Angola Airlines (National Airline of Angola)
IIA Institute of Internal Auditors TMPS Total measurable procurement spend
IIRC International Integrated Reporting Council UTN Upington International Airport
GREYMATTER & FINCH # 12050TABLE OF CONTENTS
4 ABOUT OUR INTEGRATED REPORT
6 COMPANY OVERVIEW REFERENCE INFORMATION
12 STRATEGY
Run airports
18 VALUE CREATION MODEL
Develop airports
22 MATERIAL MATTERS
Grow our footprint
36 TRANSFORMATION
Our business
40 MESSAGE FROM THE ACTING CHAIRMAN
Our people and society
44 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
Our environment
52 MESSAGE FROM THE ACTING CHIEF FINANCIAL OFFICER
Online information
60 PERFORMANCE REVIEW
Page reference
92 GOVERNANCE AND REMUNERATION
122 STATISTICAL REVIEW Consolidated annual financial statements
124 COMPANY INFORMATION Assured by independent external auditor
INTEGRATED REPORT 2018
Assured by internal audit team
12
AIRPORTS COMPANY SOUTH AFRICA
HOW WE INTEGRATE
Airports Company South Africa SOC Ltd (the Company) owns and manages nine South African airports. The Company is involved in equity investments abroad and provides technical advisory and
consultancy services to other airports globally. Our majority shareholder is the South African Government (74.6%). In line with the government’s objectives, we focus on creating sustainable value that
positively impacts our business, our people and society, and our environment over the short, medium and long term. We do this by managing the Company in an integrated manner. The diagram below
illustrates how these processes inform our integrated thinking and our approach to reporting.
Appropriate governance controls and oversight are in place throughout the Company to ensure effective control, and a strong sense of ethics and legitimacy,
which is reflected in good performance. Refer to page 94
“Embedded in
our strategy is our
External focus Internal focus Holistic focus Our strategic proposition Performance against strategy Remuneration
Through our stakeholder engagement Our inward focus is on the risks Our holistic understanding of the Our strategy reflects our response To reflect on the extent to which we We remunerate our people based on active contribution
process, we seek to understand the needs
and concerns of our valued stakeholders.
and opportunities highlighted by our
enterprise risk management system.
challenges our Company faces and the
opportunities available for improvement
plan in the short, medium and long term,
by setting objectives and explaining
have succeeded in delivering against our
strategy, we provide performance feedback
performance. This promotes the successful
execution of our strategy.
to the evolution
Refer to page 29. Refer to page 32.
and growth enables us to respond to how we aim to achieve them. in the following sections of our report:
Refer to page 113. of South Africa’s
material matters. • Message from the Acting Chairman
Our commitment to stakeholders • Regulatory environment
Refer to page 25.
Refer to page 15.
on page 42 democracy and the
• • • Message from the Chief Executive
To build purposeful and responsive
relationships with our stakeholders to •
Skills
Transformation • Economic regulation •
Run airports
Develop airports Officer on page 46 empowerment of our
achieve agreed outcomes that support
sustainable value creation.
•
•
IT platform
Funding
•
•
Technology and digitisation
New growth opportunities
• Grow airports • Performance review on page 62
• Message from the Acting Chief
country’s people.”
• Our pledge to our customers Financial Officer on page 54 Deon Botha
Safety and security
The main concerns and focus areas raised • To embed a culture of service Acting Chairman
• Access to and cost of funding
during our stakeholder engagement excellence In these chapters, we also provide an
• Transformation
processes were: • To build an efficient customer-focused outlook for expected future performance. Refer to message on page 42.
• Create value for shareholders business, while contributing to socio-
• Airport safety and security economic development
• Understand passenger and
partner needs
• Transformation
• Job creation
• Sound financial performance,
governance and regulatory compliance We ensure that our value creation model
INTEGRATED REPORT 2018
utilises resources and relationships
Through our business review process, we
(our capitals) optimally and is structured
gain an understanding of changing global
to enable strategy execution and
trends and how these impact our operating
value creation.
environment.
Refer to page 28.
34
AIRPORTS COMPANY SOUTH AFRICA
ABOUT OUR INTEGRATED REPORT
Supplementary reports FORWARD LOOKING STATEMENTS
Consolidated annual financial statements The forward-looking statements contained in this report,
OUR REPORTING PHILOSOPHY
or oral statements that may be made by us or by officers,
We continuously strive to improve our reporting elements through disclosure and alignment to relevant reporting frameworks Purpose and framework Scope and boundary Assurance
Directors, prescribed officers or employees acting on
and best practice. The Company seeks to provide investors and other stakeholders with relevant and material information about Reports on the current and prior year Consolidated financial results • Internal controls our behalf, constitute, or are based on, various or certain
performance and our future prospects. financial results and contains: for the Company and all • Management and governance oversight assumptions which might change or be subject to revision.
• Report of the audit and subsidiaries for the financial • Internal audit These statements involve risk and uncertainty, as they
OUR REPORTING SUITE relate to events and circumstances that may or may not
risk committee year ending 31 March 2018. The • External audit opinion
The documents in the table below, including a digital version of the integrated report, can be found at www.airports.co.za • Directors’ responsibilities financial reporting boundary was occur. Factors that could cause actual future results to differ
or by scanning this QR code. materially from those in the forward-looking statements
and approval determined in accordance with
include, but are not limited to: global and domestic economic
• Company Secretary’s certification IFRS. Refer to the legal structure
conditions; the nature of the aviation sector and specifically
This integrated report (our primary report) • Report of the Auditor-General on page 10. the performance of airline operators; changes in passenger
to Parliament profiles and choices; retail offerings; interest rates; credit and
Purpose and framework
A report to providers of financial capital
Scope and boundary
The report contains material
Assurance
• Management and governance oversight.
Our integrated reporting process • Directors’ report the associated risks of borrowing and funding; rating agencies’
• Consolidated annual outcomes; gross and operating margins; capital management;
and other stakeholders stipulating information on Company • The strategic objectives were internally has matured over the past financial statements and competitive and economic regulatory factors. Airports
a long, medium and short-term view performance across all areas of and externally assured, and audited by Company South Africa does not undertake to update or revise
of value creation. operation for the financial year the Auditor-General of South Africa as per five years to include quarterly The report was developed using the any of these forward-looking statements publicly, whether
following frameworks and standards: to reflect new information or future events or otherwise.
The report was developed using the
1 April 2017 to 31 March 2018
(the financial year).
the Public Audit Act of South Africa,
No. 25 of 2004.
integrated reports presented to • IFRS The forward-looking statements have not been reviewed
following frameworks and standards: • Companies Act
• IIRC’s International Integrated Our materiality determination
• The National Treasury’s Framework for
Managing Programme Performance
the board by our Chief Executive • PFMA
or reported on by the Company’s external auditor.
BOARD APPROVAL
Reporting Framework
• IFRS
process is defined on page 24
Information confirms that performance Officer. This embeds the process Results presentation1 The board acknowledges responsibility for overseeing the
We disclose relevant internal and information is useful if indicators and
• Companies Act
• PFMA
external factors that substantially targets are well defined, verifiable, of managing, measuring and Provides investors with a high-level summary of:
• Operational performance
integrity and completeness of this integrated report and
exercises this responsibility with the support of various
• King IV
influence our business where
applicable.
attainable, specific, measurable, time
bound and relevant. We considered these
reporting on our business, • Financial performance sub‑committees. The board approved the reporting frameworks
and materiality determination process applied the report.
• ISO/SANS 31000 • Short, medium and long-term strategy
There were no restatements
elements in finalising the information
presented in this integrated report. The
our people and society, and Value creation model1
The board confirms that, after applying its collective mind to
the preparation and presentation of the report and reviewing
to comparatives unless
otherwise stated.
external audit opinion on the consolidated our environment, in line with Additional information on the value creation model. the content herein, it considers this report to be accurate,
reliable and complete in presenting information and material
annual financial statements 2018 includes
The financial reporting boundary a summary of the work performed against our Sustainability Framework. Board and executive curricula vitae1 matters. The board concludes that this report is presented per
was determined in accordance A comprehensive overview of the skills and competencies of our board and Executive Committee members. the Framework and approved the 2018 integrated report
our strategic objectives.
on 30 July 2018.
with IFRS. 1
These supplementary reports were not developed using any specific framework or standard and were subject to management oversight and internal control to
ensure integrity of information.
If you wish to contribute to the improvement of our integrated report
INTEGRATED REPORT 2018
FEEDBACK through comments, or if you have any queries, email Refentse Shinners,
our Group Executive: Corporate Affairs at Refentse.Shinners@airports.co.za. Deon Botha Bongani Maseko Dirk Kunz
Acting Chairman Chief Executive Acting Chief Financial
All reports in the table above, including a digital version of the integrated report, can be found at www.airports.co.za. Officer Officer
56
AIRPORTS COMPANY SOUTH AFRICA
COMPANY OVERVIEW
“In July 2018, we celebrate the
25-year anniversary of Airports
Company South Africa as a leading
provider of airport services”
Bongani Maseko Chief Executive Officer
INTEGRATED REPORT 2018
78
AIRPORTS COMPANY SOUTH AFRICA COMPANY OVERVIEW CONTINUED
OUR MANDATE OUR GEOGRAPHIC FOOTPRINT Aircraft Departing
Airports Company South Africa is mandated to undertake landings passengers
the acquisition, establishment, development, provision,
maintenance, management, operation and control of any 2016 2016
airport, any part of any airport, or any facility or service at any 284 285 19 374 239
airport normally related to an airport function. This mandate
is in line with the Airports Company Act, No. 44 of 1993, INDIA 2017 2017
as amended. Chhatrapati Shivaji International 282 057 20 001 961
Airport in Mumbai is an equity
SHAREHOLDING investment.
2018 2018
The Company is a Schedule 2 public entity in terms of the 264 457 20 836 852
PFMA and operates as a legally and financially autonomous SOUTH AFRICA STATISTICS
company within the legal framework outlined in the
Companies Act, No 71 of 2008. Annual
Total annual passenger On-time
74.6% departing throughput Aircraft Permanent performance2 ASQ category
20.0% GHANA Location passengers capacity1 landings employees % ASQ3 group average
4.2%
The Company performs technical O.R. Tambo
1.2% 1 10 662 446 28 000 000 110 286 1 143 84.55 3.96 4.33
advisory and consultancy services at International Airport
Kotoka International Airport in Accra. Cape Town
2 5 404 706 14 000 000 51 497 549 86.66 4.06 4.15
International Airport
King Shaka
3 2 819 458 7 500 000 27 058 384 85.90 4.16 4.15
International Airport
Port Elizabeth
4 821 735 2 000 000 26 992 122 84.10 4.00 4.14
1 International Airport
Bram Fischer
BRAZIL 6 9 5 5 199 095 600 000 9 936 68 79.35 3.87 4.14 SOUTH AFRICA LEGEND
3 International Airport
Guarulhos International Airport in
São Paulo is an equity investment. Upington International airport
6 33 113 100 000 3 671 23 83.80 4.28 4.14
South African Government: The Department of Transport International Airport
is our primary shareholder. 7
Regional airport
8 4
Public Investment Corporation (PIC): The PIC shareholding is held 2 7 East London Airport 411 373 1 200 000 13 521 67 81.13 3.92 4.14
through ADR International Airports SA (Pty) Ltd, a wholly owned Equity investment or technical advisory and
subsidiary of PIC.
consultancy services
Empowerment investors: 8 George Airport 398 511 900 000 17 051 65 81.13 4.23 4.14
• 1.2% G10 Investments (Pty) Ltd
• 1.4% African Harvest Strategic Investments SOUTH AFRICA NOTE:
• 0.4% Pybus Thirty Four Investment (Pty) Ltd 9 Kimberley Airport 86 415 200 000 4 445 45 77.38 3.76 4.14
We operate nine airports and provide technical
• 0.8% Telle Investments (Pty) Ltd
1
Annual passenger throughput capacity includes both arriving and
INTEGRATED REPORT 2018
advisory and consultancy services for Mthatha departing passengers.
• 0.4% Upfront Investments 64 (Pty) Ltd
and Wonderboom airports. Corporate – – – 423 – – – 2
On-time performance is the percentage of aircraft departures within
Staff share incentive scheme: Dormant as the scheme 15 minutes of their slot time.
is being dissolved. 3
Airport Service Quality (ASQ) is a programme operated by the
TOTAL 20 836 852 54 500 000 264 457 2 889 84.80 4.08 – Airports Council International (ACI). It is a globally established
benchmarking programme measuring passengers’ satisfaction on a
scale of 1 (poor) to 5 (excellent).
910
AIRPORTS COMPANY SOUTH AFRICA COMPANY OVERVIEW CONTINUED
OUR LEGAL STRUCTURE
Airports Company South Africa derives value from aeronautical and non-aeronautical operations, including local and international investments. This is structured as follows:
100%-owned subsidiaries1 Special purpose entities2 Investments in joint ventures5 Investments in associates6
Guarulhos
Lexshell 342 Airport Management Sakhisizwe Airport Logistics La Mercy JV International
ACSA Airports Consultancy JIA Piazza Park Precinct 2a Investment Holdings Share Incentive Scheme Community Property Holdings Property Mumbai International Airport Airport
Name Global Ltd and Advisory Services (Pty) Ltd (Pty) Ltd (Pty) Ltd (Pty) Ltd Programme (Pty) Ltd Investments Private Limited Private Limited
Purpose of existence The investment holding The provision of airport The holding company A company through which An employee share option Employee share incentive Non-profit company (education). A property holding company A land development and property A company through which we hold A company in which we hold a
company through which consultancy and through which we own approximately entity, wholly owned by scheme that holds with the Bidvest group that owns investment company in collaboration a 30-year concession (with the 20-year concession to develop,
Airports Company advisory services to we operate the 250 hectares of land the Airports Company investments (specifically three distribution warehouses at with Dube Trade Port Corporation. option to renew for another 30 years) operate and maintain the Guarulhos
South Africa holds its airports in South Africa InterContinental adjacent to O.R. Tambo South Africa Kagano company ordinary shares) O.R. Tambo International Airport and Our strategy is to build an to develop, operate and maintain the International Airport in São Paulo.
10% interest in the and internationally. Hotel at O.R. Tambo International Airport. The Trust.3 on behalf of the airport’s Cape Town International Airport. investment property portfolio at Mumbai Airport.
We provide technical advisory and
Mumbai International This subsidiary will be International Airport. strategy is to redevelop participating employees.4 King Shaka International Airport –
consultancy services.
Airport Private Limited leveraged to provide property for aeronautical Dube Trade Port through land-lease
(refer to investments in services for future and non‑aeronautical agreements.
associates on prospects. purposes to grow rental
page 11. ) property income.
Year of inception 2005 2016 1998 1998 1999 1999 1996 2003 2009 2006 2012
Airports Company
South Africa shareholding 100% 100% 100% 100% SPE SPE SPE 50% 40% 10% 10.2%
Other shareholders N/A N/A N/A N/A Airports Company Airports Company N/A Bidvest Holdings Ltd Dube Trade Port Corporation (GVK) (50.5%) A joint venture between Investments
and their respective South Africa Management (50%) e Participações em Infrastructura
shareholdings (60%) Bidvest (13.5%)
S.A (Invepar) (80%) and Airports
Kagano Trust³ Share Incentive Scheme
Airports Authority of India (26%) Company South Africa (20%), which
Trust
holds 51% of Guarulhos Participações
S.A (GruPar)
Equity injections R100 Nil R100 R100 Nil Nil Nil Nil R38 million R347 million R1.2 billion
Net asset value at
31 March 2018 R541 million Nil R30 million R125 million (R2 million) R13 million R0.5 million R47 million R170 million R6.7 billion (R3.5 billion)
¹ Subsidiaries are all entities (including special purpose entities (SPEs)) over which the Company has the power to govern the financial and operating policies, generally with a shareholding of more than half of the voting rights. 4
Airport Management Share Incentive Scheme (AMSIS) exists only as a special purpose vehicle for the Management Trust and holds ordinary shares in Airports Company South Africa as an investment on behalf of its holding company, the Management Trust.
² An SPE is a subsidiary of the Company that attempts to isolate risk to the parent company by maintaining its assets and liabilities on a separate balance sheet. The Management Trust is dormant and has no beneficiaries, as all beneficiary shares were bought back during 2009. The Company intends repurchasing its ordinary shares from AMSIS and thereafter possibly winding up the Management Trust and AMSIS.
3
The Airports Company South Africa Kagano Trust was formed under the Trust Property Control Act to administer the staff share scheme (until they were paid out in 2013), and to be a holding company with its two subsidiaries, Lexshell 342 and Lexshell 343. ⁵ Joint ventures are entities over which the Company has joint control over the economic activity through a contractual planning arrangement. The Company recognises its interests in the joint venture using equity accounting.
Lexshell 343, currently dormant, was specifically formed to hold Company share options should Airports Company South Africa list on the JSE. The Company intends repurchasing its ordinary shares from Lexshell 342 and possibly winding up the Kagano ⁶ Associates are all entities over which Airports Company South Africa has significant influence but not control, generally with a shareholding of between 20% and 50% of the voting rights. Investments in associations are accounted for using the equity
Trust, Lexshell 342 and Lexshell 343. The Kagano Trust is dormant and has no beneficiaries. method of accounting and are initially recognised at cost.
INTEGRATED REPORT 2018
1112
AIRPORTS COMPANY SOUTH AFRICA COMPANY OVERVIEW CONTINUED
STRATEGY
As a State-owned company, Airports Company South Africa has a greater
mandate than simply delivering profitability for its shareholders. We are mandated
to advance South Africa’s national agenda of economic growth and development
while delivering a sustainably profitable business. We strive to fulfil this mandate
INTEGRATED REPORT 2018
by conducting our business in an ethical manner that enables inclusive growth and
creates sustainable value for all our stakeholders.
1314
AIRPORTS COMPANY SOUTH AFRICA STRATEGY CONTINUED
Strategy Long-term horizons
Our three-pillar strategy, namely to Run airports, Our strategy is implemented over three time horizons to create Financial
Develop airports and Grow our footprint is supported by our value over the short, medium and long-term.
Sustainability Framework. Each of these elements is aligned to
our mission, vision and objectives. We implement our strategy Horizon 1
Create value for shareholders
and measure our performance against a set of strategic By 2020:
Diversify
Diversify business business
portfolio (2 & 3) portfolio
objectives and KPIs. Extend and defend our businesses
Customer
Our mission Horizon 2
To develop and manage world-class airport businesses for the By 2025: Increase our reputation through demonstrated
benefit of all stakeholders. Build emerging businesses and drive medium-term growth Increase stakeholder satisfaction through business excellence
Improve the passenger experience through
effective partnership demonstrated operational excellence
Our vision Horizon 3 Internal processes
To be a world-leading airport business.
Beyond 2025: Strategy map
Vision 2025 Create viable options to ensure the Company’s success Our strategy map depicts Run airports Develop airports Grow our footprint
To be the most sought after partner in the world for the in future our strategic objectives
provision of sustainable airport management services and KPIs in the context By running our airports efficiently and Improving our capacity and infrastructure A larger footprint increases our exposure to
by 2025. Strategic outcomes Our people and society of our balanced scorecard. developing them innovatively, we will enhance grows our footprint through effective operation diverse methods, allowing us to learn and grow,
the regional economy. and partnerships. and improve the way we run airports.
The effective application of our strategy will result in the
Our values Our KPI performance in
following strategic outcomes:
Our values are defined through the acronym PRIDE: Passion, relation to our strategic Contribute to increase traffic through the airports we operate
• Long-term sustainable value creation pillars and Sustainability Provide equitable access to safe airports in all
Results, Integrity, Diversity, Excellence.
South African regions to allow more people to fly
• Strengthening our reputation and continuing to build Framework is summarised Improve connectivity to regions we serve
Sustainability Framework win‑win partnerships with our stakeholders on page 16.
Reduce our environmental impact
Our Sustainability Framework comprises three elements • Continuously improving the passenger experience
that guide the fulfilment of our mandate and ensure that our • Becoming a digitised business Maintain and improve our contribution to broad-based black economic empowerment (B-BBEE)
decisions and actions support our journey towards Vision 2025: • Identifying and securing new business opportunities
• Managing and developing a high-performance team Support black business entrepreneurship
Our business • Accelerating sustainability and transformation Promote regional integration and localisation of our airports
Enhance our reputation, improve passenger experience, increase programmes
stakeholder satisfaction, contribute to airport traffic and • Reducing our environmental impact
diversify our business
Foster a positive employee workforce
Our environment Improve Leadership Culture Index Achieve demographically represented workforce
and environment
Minimise our environmental impact and strive to be
carbon neutral Organisational capacity
LEGEND
Our people and society Our business Our environment Our people and society
INTEGRATED REPORT 2018
Contribute more to black economic empowerment and support
black business growth; provide improved access to airports for
South Africans; improve airport connectivity to the regions we
serve; diversify our workforce; and create a positive environment
1516
AIRPORTS COMPANY SOUTH AFRICA STRATEGY CONTINUED
Our current strategic objectives, KPIs and initiatives
We believe that our strategy should be responsive to our stakeholders’ needs and our changing business environment. We appointed a Chief Strategy and Performance Officer to strengthen the
process of strategic development, implementation and monitoring in the Company. The following table summarises our performance related to the strategic pillars and Sustainability Framework,
with more detail provided throughout the integrated report.
Strategic objectives KPIs 2018 Initiatives delivered in 2018
Run airports Develop airports Grow our footprint
Our business Target Actual
Create value for shareholders Return on equity 4.2% • Integrated data management across our airports • Embarked on R891 million infrastructure • Expanded provision of airport management services
to improve efficiency and effectiveness of airport investment programme to Mthatha Airport and Kotoka International Airport
Generate non-core income R58.8 million management • Strengthened project management for more effective in Ghana
Diversify business portfolio
Non-aeronautical revenue as a percentage of total revenue 50% • Implemented digitisation strategy to strengthen project delivery • Formalised relationships with airport authorities
safety and enhance customer experience in Cameroon, Liberia and Namibia
Increase our reputation through demonstrated business excellence Reputation Index ≥ 59
• Strengthened stakeholder engagement with new key • Established Gauteng Route Development Committee
Increase stakeholder satisfaction through effective partnership Airport stakeholder satisfaction 3.7 account model and continued to collaborate with route development
At least 7 agencies in Western Cape, KwaZulu-Natal and
Improve the passenger experience through demonstrated operational excellence Passenger satisfaction
ranked airports Eastern Cape
• Secured new routes linking St Helena and Rome
Improve connectivity to regions we serve Grow regional airport departing capacity 5%
to Johannesburg, and Cologne to Cape Town; and
Contribute to increase traffic through the airports we operate Increase ORTIA connectivity 135 expanded flight offerings on seven existing routes
Provide equitable access to safe airports in all South African regions to allow
Participate in non-ACSA airports in South Africa 40 service man days
more people to fly
Our people and society
Promote regional integration and localisation of our airports Create job opportunities 22 414 • Implemented transformation sector strategies in • Introduced measures to accelerate socio-economic • Developed young talent and implemented talent
property, retail, car parking, advertising, information growth in construction contracts mobility plan in support of business development
Grow black business share of operational and developmental spend 48%
Support black business entrepreneurship technology and construction sectors to accelerate
Grow black business share of commercial revenue generated 48% socio-economic growth
Maintain and improve our contribution to B-BBEE Achieve B-BBEE level Level 3 • Appointed ESD partner to facilitate transformation
of supplier base
Improve Leadership Culture Index Leadership Culture Index ≥ 65%
Achieve demographically represented workforce Promote employment equity 92.4%
Foster a positive employee workforce and environment Employee satisfaction survey 3.8
Our environment
• Achieved ACI Carbon level 1 re‑certification • Secured an uncontested environmental impact
ACI level mapping
INTEGRATED REPORT 2018
Reduce our environmental impact ACI carbon accreditation level for four airports assessment for runway realignment project at
KSIA and PLZ
• Preparing for level 2 accreditation Cape Town International Airport
LEGEND
Target exceeded Target achieved Working towards achievement of target
1718
AIRPORTS COMPANY SOUTH AFRICA
VALUE CREATION MODEL
We optimise our value creation model through
the effective implementation of our strategy to
achieve our strategic objectives and Vision 2025.
INTEGRATED REPORT 2018
1920
AIRPORTS COMPANY SOUTH AFRICA VALUE CREATION MODEL CONTINUED
How to read the value creation model: Review information from left to right for a complete picture of our business model and value creation process.
Where relevant, references to more detailed information are provided. OUTCOMES VALUE CREATED
The inherent consequences of our
OUTPUTS To all our stakeholders
activities
ACTIVITIES Our products, services and by-products
INPUTS
The value chain activities and processes We have created value and contributed
The six capitals required to create value Our business
Aeronautical • Achieved 4.2% return on equity to inclusive growth in South Africa1:
Our governance framework and Our three-pillar strategy is implemented: • Aircraft landing, parking and • R9.5 BILLION to GDP
TRANSFORMATION INTENT operating model ensure • Run airports • Improved Reputation Index
Our business passenger services • R2.3 BILLION in taxes
Imperatives that determine our • An ethical culture • Increased airport connectivity index
• Develop airports • Cargo handling • R2.8 BILLION in income
EXTERNAL AND definition of value • Effective leadership for passengers
Financial Manufactured Intellectual • Grow airports • Passenger movement to South African employees
INDUSTRY INFLUENCES • Governance over all functional areas • Generated non-core income
• Capital expenditure • Nine airports • Technical advisory Non-aeronautical • Government was our largest
Influencing our playing field
• Appropriately composed • Achieved 49% non-aeronautical revenue
Transformation imperatives are of R891 million • Capacity for and consultancy • Retail, car rentals, parking and advertising beneficiary at 42% of value
governance structures as a percentage of total revenue
aligned to the NDP imperatives: • Baa3 stable 55 million • Research and • Property management and rentals – hotels, distributed
• B-BBEE Level 2
credit rating passengers development ground handling, tenants, and airline
Global increase SOCIAL IMPERATIVE • Created 24 741 job opportunities We also comply with 12 of the 17
• 4.2% return • IT infrastructure • Organisational Non-core
in air traffic Socio-economic activities that BUSINESS MANAGEMENT BUSINESS OPERATIONS UN Sustainable Development Goals
on equity change • Technical and advisory services, airport
empower communities to lead (SDGs).
Driven by population and GDP • 22% gearing ratio Airport management solutions and training academy
growth, middle-class growth, better lives Strategy and performance
management
air service agreements and MORAL IMPERATIVE
lower air fares Fair and equal opportunity for Societal Our people and society
Our people and society Support socio-economic transformation through: • Demographically representative
Air transport market the economically active, free of Integrated governance
discrimination Technical employees
Human Social and relationship Business Enterprise • CSI initiatives
Competitive forces in the service • Positive and accountable leaders
ECONOMIC IMPERATIVE • 3 076 employees • Seven sector-specific development security • Preferential procurement
global, African and South solutions • Reputation score of 63.1
Changing the face of business • R40 million invested transformation strategies • Skills development
African air transport markets Corporate affairs • 259 additional job opportunities
to reflect South Africa’s in skills development • Stakeholder engagement • Education support
created for young talent
Tourism demographics by supporting • 93.3% black employees • R44 million invested • Multi-modal transport access
Consistent increase in the and developing SMEs through in socio-economic
Transformation Infrastructure asset
number of foreign tourists company-specific strategies in development projects management
and South Africans visiting these sectors:
destinations abroad • IT Environmental impacts and advances Our environment
• Construction Our environment • Electricity consumption: photovoltaic plants • ACI carbon re-certification 1
Airports Company South Africa Social, Economic and
Economic impacts BUSINESS ENABLEMENT Environmental impact study for FY2017
• Property provide electricity to national grid at four airports
Market activity and • Retail Natural Financial Human Information Supply chain • Water consumption • Medium impact noise pollution
influences of global, African • Advertising Management Resources Technology management
• Water, fuel and electricity usage • Fuel consumption • Decreased fauna and flora diversity
and South African economies • Car rental
INTEGRATED REPORT 2018
• Water saving and augmentation plans • Reduction in available water
• Ground handling • Three photovoltaic plants
• Eight ISO14001:2015 certified airports
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AIRPORTS COMPANY SOUTH AFRICA
MATERIAL MATTERS
We consider matters to be material if they have the potential
to substantially affect our ability to implement our strategy as
a State-owned company and fulfil our commitment to creating
and sustaining value for our stakeholders over the short,
INTEGRATED REPORT 2018
medium and long-term.
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AIRPORTS COMPANY SOUTH AFRICA MATERIAL MATTERS CONTINUED
HOW WE DETERMINE MATERIALITY HOW OUR RESPONSE TO MATERIAL MATTERS CREATES VALUE
Our material matters, which include risks and opportunities, are derived through an integrated assessment process conducted by our executives and approved Our strategy is informed by our material matters. Throughout this report, we demonstrate how our strategic objectives generate sustainable value for our
by the board within the context of our overarching governance framework and operating model. This process is depicted below, followed by a more detailed Company, our stakeholders and the broader society in which we operate. The following table demonstrates our strategic response to our material matters,
discussion on each stage of the process. the impact on stakeholders, and the trade-offs that were necessary to create value during 2018 and in the medium and longer term.
IDENTIFY RELEVANT INTERNAL AND EXTERNAL MATTERS
Business environment Business environment, risks and opportunities
We assess local and global business conditions that have the potential to affect our business negatively or positively. This includes regular reviews of global megatrends, • Growing demand for air travel increases opportunity but places pressure on airport infrastructure
aviation-specific trends and high-impact events. Refer to page 28.
RUN AIRPORTS • Regulated charges for the use of airport facilities limit our ability to manage our core revenue
• Digitisation enables efficient airport operation but increases risk of disruption and cyber-crime
Stakeholder engagement • Safety and security incidents threaten airport operations, passengers, tenants and employees
We identify our stakeholders, review and analyse their concerns and needs in relation to our operating context, and engage with them. This process enables the Company • We are mandated to operate ethically and to facilitate inclusive growth in South Africa
to develop and sustain positive, value-creating relationships with stakeholders. Refer to page 29.
Our response to risks and Impact of our response on Trade-offs to achieve our desired
Risks and opportunities
A comprehensive risk analysis of our business informs our assessment of materiality and strategic decisions. Refer to page 33.
Material matters opportunities in 2018 stakeholders in 2018 and beyond Our desired outcome outcome
Economic regulation • Active engagement with • Appropriate revenue decision • Achieve return on equity target 35.5% tariff decrease mitigated by traffic
Regulating Committee outcomes enable us to achieve • Improve Reputation Index growth and financial management
• Prudent financial planning our financial goals and maintain Delay in the Permission Decision may
to mitigate tariff reduction service levels impact future service
ASSESS MATERIAL MATTERS Technology and • Digital strategy implemented to • Use of innovative technology • Achieve return on equity target Investment in digital strategy enabled
digitisation improve operational efficiency and enables us to respond to customer • Improved Reputation Index improvement in IT maturity assessment
Magnitude of effect and likelihood of occurrence customer service needs for efficiency and safety and
We classify our material matters by assessing the relevant internal and external matters identified according to the magnitude of their effect and the • External expertise appointed defend our competitive position
likelihood of their occurrence. Refer to page 34. Safety and security • Integrated data solutions • Major safety incidents or security • Focused on improving airport Investment in digitisation to improve
implemented to strengthen safety breaches - threat prevention and stakeholder and passenger safety safety and security
and security response procedures in place.
• Partnership established with law
enforcement agencies
PRIORITISE MATERIAL MATTERS
Transformation • Accelerated transformation • Continued approach to contract • Create job opportunities Invested R110 million in transformation
sector strategies with ESD suppliers. • Grow black business share of initiatives, despite constraints in our
Material matters business environment
• Employee housing benefits • 2 038 direct and 10 810 indirect operational and developmental
The result of our integrated materiality determination process is a set of clearly defined and prioritised material risks and opportunities
• Employee transport jobs created spend and commercial revenue
that inform our strategy and have the potential to influence the execution of our strategic objectives. Refer to page 35.
solutions implemented • 37% of employees benefit from • Achieve B-BBEE level
INTEGRATED REPORT 2018
housing solutions • Promote employment equity
• Employees will benefit from new
transport solution
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AIRPORTS COMPANY SOUTH AFRICA MATERIAL MATTERS CONTINUED
Business environment, risks and opportunities Business environment, risks and opportunities
• Growing demand will continue to increase pressure on airport infrastructure • Slow economic growth
DEVELOP AIRPORTS • Regulating Committee’s approval of airport charges provides planning certainty, but delayed approval may impact our ability GROW OUR FOOTPRINT • Increasing air service agreements and competition in Africa
to provide excellent customer service • Medium to long-term regulatory uncertainty
• Negative perceptions of South Africa and State-owned entities impact our ability to raise affordable funding • Opportunity to reduce concentration in core revenue by diversifying revenue sources
• Airport development contributes to inclusive growth in a socially constrained South Africa
Our response to risks and Impact of our response on Trade-offs to achieve our desired Our response to risks and Impact of our response on Trade-offs to achieve our desired
Material matters opportunities in 2018 stakeholders in 2018 and beyond Our desired outcome outcome Material matters opportunities in 2018 stakeholders in 2018 and beyond Our desired outcome outcome
Economic regulation • Engaged with Regulating • Tariff certainty until 2020 enabling • Achieve return on equity target Delays in the Permission Decision and New growth • Increased engagement with • By diversifying revenue, we reduce • Achieve return on equity target Increased non-core revenue to
Committee infrastructure investment to • Improved Reputation Index increasing passenger numbers may opportunities African airports dependence on aeronautical • Generate non-core income R59.8 million (target: R58.8 million)
• Entrenched more progressive supply maintain and expand airport impact future service • Increased provision of advisory revenue, and strengthen long-term • Grow non-aeronautical revenue and aeronautical revenue to 49% of
chain management facilities services globally sustainability • Grow regional airport total revenue, but did not meet the 50%
• Expanding capacity of major • Growing our airports and departing capacity KPI target .
Access to and cost of • Strengthened treasury stakeholder • Infrastructure investment develops • Focus on improving airport Invested R891 million in capital
funding engagement capacity to accommodate growth in stakeholder and passenger expenditure despite economic domestic airports developing economic opportunities • Increase O.R. Tambo International
• Strengthened governance and demand for airport services experience constraints and credit rating downgrade • Engaging with industry associations around them stimulates Airport (ORTIA) connectivity
operating model and airline partners and developing regional growth and uplifts local • Participate in non-Airports
• Prudent financial management to longer term aerotropolis plans to communities Company South Africa airports
support funding requirements stimulate economic growth in South Africa
• Create job opportunities
Transformation • Introduced contract participation • CPGs ensure transformation goals • Create job opportunities R44 million invested in SED includes
goals (CPGs) to transform are met on projects • Grow black business share of projects to offset socio-economic
construction supply chain • EIAs protect environmental operational and developmental impact of Cape Town International Detailed information on strategic objectives and KPIs is available on pages 16 to 17.
• Appointed ESD partner to drive sustainability during airport spend and commercial revenue Airport runway project
transformation goals development projects • Achieve B-BBEE level
• Achieved uncontested EIAs • Promote employment equity
• Improve employee satisfaction
INTEGRATED REPORT 2018
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AIRPORTS COMPANY SOUTH AFRICA MATERIAL MATTERS CONTINUED
IDENTIFY RELEVANT INTERNAL AND EXTERNAL MATTERS Stakeholder engagement
Management presents a stakeholder engagement report The following key stakeholder events were conducted during
Business environment
to the board quarterly through the social and ethics the year:
We consider internal and external matters in the assessment management approach to mitigate against the continuous should have a positive effect on our business activities
committee. Stakeholder engagement is managed by means • A multi-stakeholder survey engagement session with key
of our business environment. Our assessment includes unpredictability of regulatory decisions, which includes the in Ghana and improve our opportunities in other African
of a board‑approved strategy, policy and procedures. stakeholders based on RepTrak® survey results. Refer to
an analysis of potential risks and opportunities in our rationalisation of the infrastructure investment programme economies. It is also likely to heighten competition in the
Internal assurance of engagement processes identified minor page 30
environment and their impact on our stakeholders and our from time to time. This is often unfortunate in light of the continent’s airport industry.
administrative improvements. An action plan was drawn up • A Company presentation to Parliament and meetings
Company. The most significant of these are discussed below. Industry capacity requirements based on traffic volume growth
The Brazilian economy emerged from a recession during 2017. and the improvements were implemented. with the National Assembly’s Portfolio Committee on
and the socio-economic benefits that such infrastructure
Aviation sector Sustained growth in 2018 is likely to impact positively on the Transport
investments would have resulted in. Refer to page 35 Stakeholder engagement is key to determining our material
Increasing demand for global air travel is driven by GDP performance of the GruPar consortium and reduce the need • A meeting between the new Minister of Transport,
for details. matters and achieving our strategic objectives. We are
growth, burgeoning middle-class populations, air service for additional funding. Dr Bonginkosi (Blade) Nzimande and the board
committed to purposeful and responsive relationship building
agreements in global and African markets, and lower air fares. Economic environment • Distribution of the first quarterly external stakeholder
with our internal and external stakeholders to achieve
This trend is reflected in consistent growth in recent years newsletter
Like all businesses, our Company is affected by economic Social environment expected outcomes that support sustainable value creation.
• The launch of an annual Airports Company South Africa
in the number of international visitors to South Africa and
trends, but we also have a responsibility to enable economic Our Company operates in an economically constrained social
South Africans travelling to Africa or further afield. While this We strengthened our stakeholder relations strategy and golf day to prioritise stakeholder engagement with
growth. As a State-owned company we are mandated by environment. To fulfil our mandate as an employer and a State-
presents a significant growth opportunity for our Company, engagement process with the introduction of a stakeholder non‑aviation industry stakeholders
government to provide certain aeronautical transport services owned company, we work with our partners to make airline
the increasing demand places pressure on our airport facilities relations policy which formalises our multi-level engagement • Business-to-business industry engagements and other
and to contribute positively to the South African economy. access affordable and to improve skills development to benefit
and requires additional investment in the maintenance and plans. The engagement plans are implemented by our stakeholder events
Growth in the domestic economy remains under pressure, the Company and South Africa. Our transformation processes
expansion of airport infrastructure. executives and business divisions which identify stakeholders
despite signs of slow economic recovery reflected in 1.3% form part of our business operations as we seek to create value A key focus for the year ahead will be to complete the
relevant to their activities and appoint dedicated stakeholder
Economic regulation GDP growth during 2017. The downgrading of Airports through inclusive growth that aligns the needs of our Company implementation of our engagement plans and improve our
champions to manage their engagement processes.
Our ability to plan for the future, achieve our strategic Company South Africa’s credit rating, following that of the and our partners with those of other stakeholders, including the performance with new stakeholder engagement software.
objectives and create sustainable value depends on the sovereign credit rating in April 2017 will make it more difficult broader society in which we operate. A newly formed stakeholder relations team ensures that
Refer to page 112 for additional information on the
regulation of the tariffs we charge for the use of our airport for us to secure affordable funding in future. Our revenue stakeholder centricity is embedded in the Company’s
Technology governance of stakeholder engagement.
facilities and approval of our infrastructure investment declined as a result of the 35.5% reduction in regulated culture. The team monitors effective implementation of the
Rapid advances in technology have the dual effect of stakeholder relations strategy according to defined KPIs. The graphic outlines our stakeholders, their material
programmes. In December 2016, the Regulating Committee airport charges but this was partially offset by growth in
improving efficiency and exposing businesses to the risk of Internal awareness and support are developed through expectations and concerns, and their role in our value
promulgated a five-year tariff determination (Permission passenger numbers and an increase in non‑aeronautical
disruption. Our ability to adopt innovative technology and workshops and various other interactions to ensure the creation process.
Decision) that lends stability to our operating horizon until revenue. Lower employee costs supported our drive to contain
leverage it for the purposes of safety, security, operational strategy is implemented in line with our governance
2020. This creates a base for the Company’s short-term operational costs. Although confidence has improved since
efficiency and improved customer service is critical to our framework and operating model.
financial and infrastructure investment planning, and our the election of Cyril Ramaphosa as President of South Africa,
global competitiveness and continued operation. We invested
medium-term and long-term planning is conditional on conditions in the domestic economy are likely to remain
in new digital solutions to integrate our airport management
the outcome of the 2019 to 2023 permission application challenging, compounded by an increased focus on politics in
systems and implemented a comprehensive strategy to
which was submitted on 6 November 2017. The regulatory the lead up to the 2019 General Election.
support our intent to become a digitised business able to
decision received in August 2018 provides for an increase in
There were signs of recovery in many other economies in respond more effectively to opportunities and risk. More
airport charges of 5.8% in 2019 and no increases until 2021.
Africa following a loss of growth momentum in 2016. This details are available on page 35.
The Company will continue to apply a conservative financial
INTEGRATED REPORT 2018
2930
AIRPORTS COMPANY SOUTH AFRICA MATERIAL MATTERS CONTINUED
VALUE CREATION SOCIAL RESPONSIVENESS ENABLING
Policy, economic regulation and
Our stakeholder categories licence to operate Input Output Dependent Independent Partners Capital and funding providers
Our stakeholders • Government, Regulating Committee, • Employees, unions, suppliers • Passengers, airlines, tenants • Community, NGOs, environmentalists • Media and special interest groups • Associations, partners, professional • Shareholders, investors, lenders, credit
various regulators bodies, joint venture partners, tourism rating agencies
bodies, competitors
Examples of nature of engagement • Quarterly reviews with Regulating • Employee roadshows and collective • Airline operating committees • External stakeholder newsletter, • Brand awareness, networking and • Providing input for International Civil • Roadshows, results presentations
Committee bargaining structures • External stakeholder newsletter, social website and events stakeholder hospitality Aviation Organisation (ICAO) regional and AGMs
• Reports and engagements with the • Preferential procurement programmes media, and ASQ programmes for • Stakeholder meetings and bodies, African Civil Aviation Commission • Rating reviews
Department of Labour and tender processes for suppliers passengers task team forums • Meeting with airline associations • Meetings with institutional bond holders,
funders and investors
Examples of expectations and concerns • Long-term industry sustainability and • Fair and transparent remuneration with • Negotiated low airport charges for • Job creation • Airline failures • Long-term industry sustainability • Sound financial performance, return
licence to operate job security and career progression airlines • Community development • Unethical business practices • Compliance with regulator licensing on equity and dividends
• Alignment to government mandates • Transformation and ease of doing • Access to infrastructure, support and • Environmental sustainability • Airport safety and security requirements • Strong governance and regulatory
and social development programmes business for suppliers information for tenants • Customer satisfaction • Industry safety and security compliance
(e.g. NDP and UN Sustainable • Understanding passenger and partner
Development Goals) needs
• Regulatory compliance
Benchmarking or assessment • RepTrak® • RepTrak® • RepTrak® • RepTrak® • RepTrak® • RepTrak® • Assurance of annual financial statements
• Leadership culture index • Operational stakeholder survey • ASQ • Operational stakeholder survey • Credit rating agency assessments
• Employee satisfaction survey • ASQ • RepTrak®
Most of our benchmarking or assessments are independent and externally evaluated. For additional information refer to pages 62 to 63.
INTEGRATED REPORT 2018
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